After the peak of component crunch in the second quarter along with insufficient inventory in the third quarter, stress of stagnant deliverables on the highway seems to have been relieved. A consensus of the supply chain is to let the manufacturers breathe. The fourth quarter is in line with the traditional off-season, and the days should be easier. From foundries to IC design houses, Taiwanese manufacturers are in the limelight now. DIGITIMES Asia has noted in its reports that the foundry sector is now a seller's market with strong demand to last in end of 2022. Such messages are based on dynamic changes in demand-supply status of IT industry from the most upstream of the supply chain. Component shortages and component cannibalization require long-term rolling tracking. DIGITIMES Asia has been making dynamic adjustments to its views in line with rolling forecasts.
Texas Instrutments has given a less optimistic outlook for the third quarter of 2021, but industry sources have claimed that TI still sees prolonged lead times. TSMC has disclosed it is in early talks with clients about the feasibility of constructing a fab in Germany, and industry observers say such a fab could be a boost to Europe's car supply chain. DIGITIMES Asia president Colley Hwang has just published the first of his latest series of analysis of the global IT supply chain.
TSMC is evaluating the feasibility of building more fabs overseas fabs, including Germany, according to the foundry house's chairman. Strong demand and tight capacity are sending foundry quotes rising. UMC is mulling raising service fees further by 10-15% in first-quarter 2022 for 40nm process. MIH CEO Jack Cheng believes the Foxconn-led open platofrm for EV development is revolutionzing the car industry.
Chip shortage gas been serious, but Apple and carmakers are both asking for more ICs, the former looking to secure supply for its upcoming devices and the latter to prevent dirsuptions to their productions. Chinese IC designers are seeking more advanced manufacturing support from TSMC for their AI and HPC chips. Taiwan-based server makers are keen on expanding production capacity to meet strong demand.
Although the coronavirus pandemic has gradually been put under control, notebook ODMs still see their clients placing long-term orders, extending their order visibility beyond the fourth quarter of 2021. Meanwhile, Epistar and China-based Sanan have both entered into Samsung's mini/microLED chip supply chain and will begin delivery in the second half. Prices of MCUs will continue to rise through the end of 2021 as the supply of the chips will be undermined by nationwide lockdown in Malaysia and reduced support from Chinese foundries.
Strong demand and tight capacity are pushing up foundry serivce quotes. Major Taiwan-based foundry houses are expected to report record-high sales in third-quarter 2021. The overall handset market may be weak, but 5G smartphone demand is picking up. Smartphone chip vendors expect their sales to be fueled by 5G offerings in third-quarter 2021. Servers are also gearing up for the 5G edge computing boom.
China, which has been relying heavily on semiconductor imports, is keen to improve it IC self-sufficiency. But DIGITIMES Asia president Colley Hwang thinks the key for China is to keep the momentum for its economic growth. Apple reportedly will introduce the third-generation iPhone SE series in first-half 2022 adopting A14 Bionic, creating opportunities for its semiconductor supply chain. Thanks to WFH deeds, MIS has expects its shipments for IT devices to stay strong in 2021.
As wafer foundries are preparing for the next stage of competition, TSMC chairman Mark Liu has given out some details about the company's investments in the US during an investor conference. Meanwhile, Intel is rumored to consider buying Globalfoundries, eyeing for its capacity, but sources from Taiwan's upstream supply chain believe the move is unlikely. On the other hand, Chromebook shipments may slip 50% between July and August, as demand from the education sector will begin to fade.
TSMC has reported sales growth for second-quarter 2021, and expects its sales to rise further in the third quarter. The world's top foundry house has also raised it sales growth outlook for full-year 2021. Foundry houses have had difficulties building new capacity for mature nodes, supply for which will remain tight through 2022. Foxconn has made yet another move to expand its presence in the EV sector. It has announced it will invest in Singapore-based Li-metal battery maker SES.
I tried to work out some scenarios where TSMC could be defeated, the first being throwing in it into a state of panic. The semiconductor fabrication industry is highly connected with the surrounding infrastructure. A foundry service provider needs first-rate engineers and production environment. When I visited TSMC founder Morris Chang 13 or 14 years ago, he told me there was no land north of Hsinchu to build a 12-inch wafer fab. Aside from locations in central and southern Taiwan and properties owned by state-operated companies, the Taiwan government finally managed to find a piece of land near Baoshan in Hsinchu for TSMC to establish a next-generation production base. The goal was to enable TSMC to still tap the mature talent and stable water and electricity supply in Hsinchu. It is known that TSMC is given supply priority when there is water or power shortage in Hsinchu.
Intel is looking to regain its lead in foundry business, but the US chip giant it may have a mountain to climb before catching up with TSMC. DRAM prices are expected to rise in the third quarter at a slower pace, but DRAM makers are still negotiating cntract prices with the clients. And sales of graphics cards will be slowing down in the third quarter as demand decelerates, thanks to China's crackdown on cryptomining.
TSMC's capital expenditure exceeded US$10 billion for the first time in 2016. If TSMC further increases its capex and it drives investments into peripheral businesses and attracts funds from foreign corporations, the contribution these investments will make to Taiwan's GDP growth is worth investigating.
TSMC is mulling setting up more fabs overseas, apart from its exsiting facility in Nanjing, China and the one being built in the US. TSMC is looking at building new fabs in Japan and Germany for 28nm and 12/16nm chip output. Apple is keen on adopting miniLED backlighting for its devices, and is likely to add China-based Luxshare as a second supplier of SMT services for miniLED BLUs. Meanwhile, notebook component suppliers are turning cautious about building up inventory amid mixed signals about the notebook market's outlook.
Intel claims that TSMC's 7nm process is the equivalent of Intel's 10nm process. This may be true in terms of tech specs but Intel hasn't really outraced still TSMC. Samsung, on several occasions, announced they led TSMC in launching more advanced process technologies, but it failed to secure key customers. For the foundry sector, announcing more advanced process nodes ahead of competitors doesn't necessarily mean success. Production yield rates, partnerships with suppliers and co-development with customers nmnplay more important roles.
TSMC is prioritizing supply of car-use ICs, and its newly-developed N5A process is set to be available in third-quarter 2022, enabling the foundry house to expand its presence in the automotive sector. TSMC has been devoting huge sums to R&D to enable its tech leadership, according to DIGITIMES Asia president Colley Hwang in the third part of his "TSMC dossier." Meanwhile, Nanya expects DRAM contract prices to continue rising in the third quarter of 2021.
For the past few years, TSMC has consistently allocated around 8% of its revenue toward R&D. At the first glance, 8% may not seem like a large sum. However, TSMC generates a foundry service revenue that is three to four times what Samsung makes and six to eight times what UMC makes. Even if Samsung and UMC invested the same percentage of their revenue into R&D, there'd still be a big difference between their R&D expenditure and TSMC's. On top of that, TSMC is already way ahead in process technology. It will be difficult for those lagging behind to overtake TSMC even if they do it at all costs. Besides, TSMC vows not to meddle with customers' business and uphold the principle of neutrality above all else - a principle that is the key to its success.